Israel mutual fund withdrawals moderate, after public pulls NIS 8.5b in February

The Israeli public has this month continued to strip money from mutual funds tracking local securities, albeit at a slower pace, after pulling NIS 8.5 billion ($2.37 billion) from the local bourse in February to invest in overseas funds amid concern that the government’s plans to weaken the judiciary will hamper economic growth.

“We are seeing daily withdrawals of between NIS 100 million to NIS 150 million from mutual funds and exchange-traded funds (ETF) tracking local shares and bonds,” Yaniv Pagot, EVP head of trading at the Tel Aviv Stock Exchange told The Times of Israel on Thursday. “This is worrying and there is concern among citizens, but there is no real panic on the screens.”

“The volumes or amounts are not what we saw during global financial crises or during the COVID-19 crisis,” Pagot added.

Among investors, concern has grown that the proposals being advanced to curtail the power of the judiciary could negatively impact Israel’s sovereign credit rating, which in turn would harm the country’s prosperous economy and its currency and trigger an outflow of funds. Israeli tech unicorn Riskified is the latest local firm announcing that they would be transferring $500 million out of the country and are offering a limited number of relocation packages to interested staff members.

During the month of February, the Israeli public sold funds from ETFs tracking stocks and bond indices in Tel Aviv and moved to ETFs that track international bond indices and the S&P 500 Index. The public sold about NIS 1.8 billion in ETFs, mainly tracking the TA-125 and TA-35 indices, and NIS 0.7 billion in ETFs tracking corporate bond indices, according to Tel Aviv bourse data.

In the mutual fund market, the trend in February intensified from the previous month, as the public accelerated withdrawals and pulled NIS 4.3 billion from funds tracking Tel Aviv bonds up from the NIS 2.5 billion in redemptions in January. Against this, about NIS 1.5 billion was poured in equal parts into funds tracking foreign stocks and bonds, which was almost five times the amount injected into these funds during January, the bourse said.

Yaniv Pagot, EVP, head of trading at the Tel Aviv Stock Exchange (Credit: Nicky Westphal/Courtesy)

“The trend of trading on the TASE was affected by increasing disagreements over the impact of the planned legal reform on the Israeli economy, following the trend of trading in recent weeks,” the TASE said in its monthly trading report for February.

Last month, the Tel Aviv Stock Exchange’s benchmark TA-125 index dropped about five percent, while the TA-35 index of blue-chip companies fell about 4% after remaining unchanged in January, according to TASE data. The TA-90 index, which tracks the shares with the highest capitalization not included in the TA-35 index, slumped 9% during the same period, after gaining 1.7% in January. In February, the MSCI Global Index declined by about 2%.

However, last week, Israeli markets saw some moderation in the trend, after Israel’s President Isaac Herzog spoke of “advanced steps for a compromise concerning the planned legal reform, following intensification of the disagreement in recent weeks,” the Tel Aviv bourse said.

That is after the shekel depreciated by 6% against the US dollar in February, and has been trading at its weakest level in three years. It started to stabilize in the first few days of March.

“In recent days, we are seeing some signs for optimism,” said Pagot. “The market is pricing in a 20% to 30% chance for a compromise.”

In such a scenario, the market could be poised for a rebound, as Israel’s economic fundamentals are intact, Pagot added.

Tel Aviv bourse data from last week showed that in the ETF market, the trend that marked recent weeks reversed after the public sold NIS 1.45 billion in funds tracking share and corporate bond indices on the TASE since the beginning of February. In the week ended March 9th,  the public bought ETFs, mainly funds tracking the TA-35 and TA-125 indices, and ETFs tracking local corporate bond indices, in the amount of NIS 250 million.

During the same period, the public continued to purchase ETFs tracking international share indices, mainly funds tracking the S&P 500 index, amounting to NIS 100 million.

In the mutual funds market, the public last week withdrew a total of NIS 550 million from funds tracking TASE shares and bonds and poured NIS 70 million into funds investing in bonds and shares overseas.